Posts Tagged ‘goods and service tax’

GST – update: the dual control percentages decided, draft laws to be approved and classification codified on the next meeting to be held on February.18, 2017!

More than Rs.1.5 crores divided into 90% and 10% and the 10% into 50-50 between States and Centre: The Centre and the states managed to hammer out a broad consensus over the contentious issue of division of administrative control over tax assessees at the ninth meeting of GST Council Monday (16-01-2017) though it will be at the cost of a three-month delay in the rollout of the proposed indirect tax regime[1]. Finance Minister Arun Jaitley said 90 per cent of tax assessees below the annual turnover threshold of Rs 1.5 crore will be under the control of states and the remaining 10 per cent will be under the Centre’s jurisdiction[2]. For a turnover of Rs 1.5 crore and higher, there will be equal division of assessees between the states and the Centre[3]. Calling it a significant headway, Jaitley said[4], “The states would do 50 per cent of assessees above Rs 1.5 crore turnover and 90 per cent of less than Rs 1.5 crore turnover. The Centre would get to assess 50 per cent of above Rs 1.5 crore turnover and 10 per cent of less than Rs 1.5 crore turnover.” 90% of all assessees with a turnover of Rs. 1,5 crore or less will be sesses for scrutiny and audit by the state authorities, for the remaining 10% by the centre[5]. However, if there is a dispute between states over the place of supply, the Centre will have the power to administer those assessees. In all situations, the Centre will retain the power to collect this tax[6].

West Bengal and Kerala opposing, and Tamilnadu supporting the ratio: Some ministers, including West Bengal Finance Minister Amit Mitra, are learnt to have objected to the 90:10 ratio of division between the states and the Centre, instead seeking exclusive control over all tax assessees below the annual turnover threshold of Rs 1.5 crore[7]. It had argued that states did not have experience in dealing with service tax and states led by Bengal saw it as intrusion into their domain[8]. Mitra later told reporters this agreement pertained to services only. Mitra said 13 pending issues were raised by him — such as the definition of agriculture and definition of deemed exports — were being referred to the law ministry, which will revert by the first week of February, 2017. Left with little choice after holding out for nearly three hours, West Bengal finance minister Amit Mitra submitted a dissent note. The agreement hammered out was based on a proposal by Tamilnadu[9]. “As far as the dual control is concerned, the Centre has come, finally, very close to the position that the empowered committee had taken, where under Rs 1.5 crore, all goods, all deemed goods, and the decision taken on which I had to put a dissent, that 90 per cent of all goods and services will be with the states. Only 10 per cent of services are with the Centre, on which I had to dissent because I wanted 100 per cent. So we have come very close to 100 per cent but unless it is 100 per cent, I was constrained to dissent, because I wanted that extra 10 per cent,” Mitra told reporters after the meeting[10]. Kerala Finance Minister Thomas Isaac, who left the Council meeting early, said that there was no decision and an agreement was being worked upon. “The discussions are still going on. There is no agreement as to how the taxes will be administered… territorial waters, taxation powers will be delegated to the states… some compromise will be worked out. Below Rs 1.5 crore could be under the administrative control of states. Centre would have certain limited amount of audit functions that could be one possible compromise. Discussions are going on,” he told reporters. On the dissent by Mitra, Jaitley said it was confined to the extent of the 90:10 division between states and the Centre, and on other issues, he was in agreement with all other GST Council members[11]. Amit Mitra termed 90 per cent of the assessees being with states as a victory to protect small traders[12]. As per the agreement reached earlier, businesses earning upto `20 lakh in a year will be exempt from GST. For the North-eastern states this limit will be Rs 10 lakh[13].

Nautical Taxes – GST on the economic activities at the coasts and on the seas: The Council also resolved a logjam over the right to tax economic activities within 12 nautical miles from India’s coasts. The Centre also gave the right to tax economic activities within 12 nautical miles to coastal states, even as it will be the territory of the Union. At present, these states have the right to tax these activities[14]. The government is constitutionally mandated as per the Constitution (One Hundred and First Amendment) Act, 2016, passed by Parliament last year, to roll out the indirect tax regime by September 16 this year, 2017. On the issue of taxation powers in offshore areas, which was raised by states in the previous GST Council meeting, Jaitley said states will have taxation powers up to 12 nautical miles in offshore areas. Since the GST will miss the April 1 deadline, the indirect tax receipts estimates in the upcoming Budget for 2017-18 will include a combination of excise and service tax for three months and GST for the next nine months, a senior government official said.

Definition of “territory” has to be decided specifically: The definition of ‘territory’ in the Goods and Services Tax (GST) Model Law proposes to push the “physical boundaries” of India that could create aberrations for transactions on the high seas, according to a leading trade group. The territory of ‘India,’ for the purpose of the levy and collection of the Integrated Goods and Services Tax (IGST) proposed to be collected by the Centre on all inter-State supplies of goods and services and to be roughly equal to Central GST plus State GST, is proposed to be 200 nautical miles, FIEO Director General and CEO Ajay Sahai told the Empowered Committee of State Finance Ministers. This compares with the 12 nautical miles plus specified structures up to 200 nautical miles as specified in the Customs Act. The difference can create aberrations, Sahai told the meeting chaired by West Bengal Finance Minister Amit Mitra. For example, sales on the high seas between 12 and 200 nautical miles could get taxed twice to the IGST— once as a supply and later at the time of import, Mr. Sahai said. The model law also lacks clarity on the taxation of supplies terminating and originating in territorial waters and in the continental shelf and the exclusive economic zone beyond 12 nautical miles, according to FIEO.

The draft laws are to be approved on February 18, 2017: The changes would be incorporated in the draft legislations relating to Integrated GST (IGST), state GST (SGST) and Central GST (CGST), following which they would be shared with the Council at its next meeting on February 18, 2017. Citing that the whole process will take time till March, Jaitley said that July 1 will be a “more realistic date” to roll out GST. “…once they are free from making the drafts, the officials who are lending technical support will start working out the fitment of rates in various slabs. This exercise will, in all probability, take us into the month of March. The ministers and Council then assessed the realistic date by when the three important things pending — final draft legislation and rules, secondly, approval of these by the legislative bodies and fitment of rates can take place. I requested the ministers to give their opinion about the realistic dates and there was a broad view that July 1 appears to be more realistic,” Jaitley said. He said since it is a transactional tax, it can be introduced any time. The Council members felt that industry and trade should be given some adequate notice and once the rates are decided, the systems of GSTN will have to be modified suitably, he said.

Discussion about “classification,” penalty etc: Also, the penal arrest provisions, which were part of the draft law, have been diluted. Officials said default in payment of taxes amounting up to Rs 2 crore will be a bailable offence. The arrest powers will be invoked only in cases of criminal offences like forgery and tax not deposited in government coffers. Tax experts said that the consensus on cross empowerment and a delayed rollout date has ended uncertainty and will give enough preparation time to the industry. “Resolution of contentious issues such as dual control in today’s meeting signifies the most decisive step that we have seen on the GST front in the past three months. The announcement that GST rollout would be from July 1 instead of April 1 is welcome as it ends the anxiety of the industry to have a firm rollout date in place,” M S Mani, Senior Director, Indirect Tax, Deloitte Haskins & Sells LLP said. Harishanker Subramaniam, National Leader — Indirect Tax, EY India, said, “It’s indeed a very positive development and takes the GST journey forward. What remains now are the rates for various goods and services which I am sure will be decided in March 2017.” A bureaucrats’ panel is working on “classification”— a comprehensive, if not exhaustive, list specifying the tax rate that each good and service will attract[15]. “The officials will start working out on the fitment of the rates on the various slabs,” Jaitley said[16]. “This exercise will take us well into the month of March. The broad view was that July 1 appears to be more realistic (date for rolling out GST). Since it is a transactional tax, it can be introduced at any time of the year,” he said. GST is expected to transform India into a single market, boost revenues through better compliance and a simpler procedure[17]. The power to levy and collect Integrated-GST, a tax on inter-state movement of goods and services, will lie with the Centre but by special provisions in law, states will also be cross-empowered[18].